Energy Efficiency and Real Estate Profits Go Hand in Hand

by | Dec 22, 2009

real estateCommercial real estate managers have much to gain from investing in energy efficiency in their properties, according to a new report from Ceres and Mercer.

“Increasing energy efficiency in our buildings can increase occupancy rates, leasing prices and sale prices — all in a highly-competitive environment,” said Ceres President Mindy Lubber, in a press release.

On the flip side, real estate managers who don’t put energy efficiency measures into their properties risk lower profits in the future, putting them behind competitors, according to “Energy Efficiency and Real Estate: Opportunities for Investors” (PDF).

The report explains how financial services firm TIAA-CREF has made progress toward its 2010 goal of reducing energy use in its real estate portfolio 10 percent, with efforts so far resulting in $4 million a year in reduced energy costs. TIAA-CREF has decided that all buildings it develops going forward will be LEED-certified.

The report also cites a 2009 Maastricht University study that showed rental premiums of 3.5 percent on “green” U.S. office properties, while Energy Star buildings had 6 percent higher occupancy rates and sold for a premium of 16-17 percent per square foot.

In its analysis, Ceres and Mercer came to the following conclusions about investing in energy efficient real estate:

– Energy efficient buildings offer a measurable financial benefit over non-green buildings, in the form of higher rent, occupancy, valuation and lower operating costs.

– No- or low-cost energy efficiency improvements can have quick and dramatic impacts on property operating costs.

– Poorly performing buildings represent an opportunity for a significant investment gain when it comes to energy efficiency.

– Additional improvements require planning, partnerships and initial investments, but can also decrease operating expenses and raise resale and leasing value.

– Investment managers and products that consider energy efficiency and green building practices are increasingly available to investors.

– Barriers to implementing energy efficiency improvements are eroding as demand grows, research on the benefits continues, and supporting products and services improve feasibility and cost-effectiveness.

In recent weeks, major real estate firms have signed up for a pilot program that would help building owners, prospective tenants and buyers ascertain the energy efficiency of a building. The Building Energy Quotient program – Building EQ for short – is administered by the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE).

The Durst Organization, the U.S. General Services Administration and BNIM Architects are among the initial participants in Building EQ.

In October, Jones Lang LaSalle became the first major real estate service firm to enroll 100 percent of its managed property in the EPA’s Energy Star program. The company’s portfolio includes 330 office buildings in 106 U.S. cities.

The potential for energy use reductions in old and new buildings is significant, according to a report from KPMG. The study finds that energy consumption in buildings can be cut by 30 to 50 percent and still produce a positive return on investments.

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